Investment-In-Contract Post-86represent payments you may have made after 1986 for the purchase of service with PSERS. This money was previously taxed but it is not eligible for a lump-sum tax-free withdrawal. For tax purposes, these funds will be excluded from taxable income on your monthly pension spread over your expected lifetime using the IRS Simplified General Rule. This amount will also include any payments you may have made for a Purchase of Service with PSERS through a direct rollover using Investment-In-Contract Post-86 funds.
Taxable contributions, also known as pick-up contributions, represent non-taxed contributions withheld from your salary after 1982. This amount will include any payments you have made for a Purchase of Service with PSERS through a direct rollover using taxable funds.
Interest represents the non-taxed interest paid on your account at four percent per year.
Direct Payment To Member: The IRS requires that PSERS withhold 20 percent federal income tax from the taxable portion paid directly to you and remit it to the IRS. Ultimately, you will be taxed in accordance with your personal federal income tax bracket. You have 60 days to roll over to an IRA or other qualified plan any taxable money paid directly to you; however, PSERS will not return the 20 percent tax withheld. If you are under age 55 in the year you terminate employment and do not roll over your taxable withdrawal, you are responsible to pay an “Additional 10% Income Tax on Early Distribution” directly to the IRS unless you defer the payment to you until you reach age 59 ½.
Direct Rollovers: You may roll over any portion of your money into an eligible retirement plan. Funds may be rolled to more than one type of plan or more than one financial institution of your choice. Taxes will not be withheld from any money that PSERS sends to an eligible retirement plan as a direct rollover. The IRS has special rules about rollovers and distributions when you reach age 70 ½. You may not be able to rollover 100 percent of your contributions and interest; PSERS will rollover only the amount allowed by IRS regulations.
36 For each option, different conditions concerning withdrawing your contributions and interest are
provided with the estimate. These conditions are the same for all monthly payment plans:
First condition is leaving all of your contributions and interest in PSERS, providing you with a higher monthly benefit.
Second condition, if applicable, is withdrawing only your tax-free funds (Pre-87), reducing your monthly benefit.
Third conditionis withdrawing all of your contributions and interest eligible for withdrawal, reducing your monthly benefit further.
Fourth condition is withdrawing a specific amount up to the total of your contributions and interest.
37 TAX-FREE CONTRIBUTIONS
If you were a contributing member of PSERS prior to January 1, 1983, and/or you purchased service credit prior to January 1, 1987, part of the contributions in your account were already taxed and may be withdrawn in a tax-free lump sum at the time of your retirement. These already taxed
contributions may be directly rolled over into certain qualified retirement plans, and are identified as Investment In Contract Pre-87 funds.
To receive IIC-Pre 87 monies without any tax liability this portion of your contributions must be withdrawn ASAP. If not withdrawn or if not withdrawn immediately (with the initial payment at retirement), these monies are taxed like Investment in Contract Post-86.
Tax-free contributions may be directly rolled over into certain qualified retirement plans (IRA (regular), 401(a), Simplified Employer Plan, Safe Harbor 401(k) as well as a 403(b) – Tax Sheltered Annuity.
IRS regulations allow you to roll over your Pre-87 tax-free contributions to a ROTH IRA as long as you meet IRS income limitations. Please consult with your tax advisor or financial institution regarding eligibility. However, PSERS will not roll over your tax-free contributions directly to a ROTH IRA.
38 Contributions made to PSERS on or after January 1, 1983, were tax deferred (not previously taxed)
and are taxable at the time of withdrawal. Also, any Investment In Contract Post-86 monies are taxable at time of withdrawal.
If you elect to have these contributions paid directly to you, they are taxable immediately and PSERS is required by federal law to withhold 20% and remit that amount to the Internal Revenue Service (IRS) for you. The 20% federal income tax withheld by PSERS may or may not be enough as ultimately you will be taxed in accordance with your tax bracket. If you are under age 55 in the calendar year that you terminate your employment, an additional 10% early retirement tax may apply. PSERS does not deduct this additional tax, but you must pay it when filing your annual federal tax return.
You may defer the payment of federal income taxes by electing a Direct Rollover to Qualified Plan. A direct rollover also allows you to avoid the 10% additional tax if you are under age 55 in the calendar year in which you terminate employment. Please consult the financial institution of your choice for more information about establishing a qualified plan and making a direct rollover.
Examples of Qualified Plans are as follows:
1. IRA--regular (Individual Retirement Account) 2. SEP (Simplified Employee Plan)
3. 401(a)
4. Safe Harbor 401(k)
5. 403(b) – TSA (Tax Sheltered Annuity)
39 SINGLE LIFE ANNUITY
Provides you, the member, with a monthly payment for your lifetime.
Payment stops upon the member’s death. Guarantees a specific sum of money be paid to you and/or your beneficiary(ies).
MAXIMUM
Highest monthly benefit available to the member based on the formula. Member receives a monthly payment for his/her lifetime.
Declining, limited death benefit. You are protecting your contributions and interest only. Once you have received this amount, there is no money remaining for your beneficiary(ies).
40 SAMPLE – MAXIMUM SINGLE LIFE ANNUITY
41 OPTION 1
Reduced monthly benefit based on your age at retirement. Member receives a monthly payment for his/her lifetime.
Increased death benefit; protecting larger sum of money for longer period of time.
Guaranteed amount equal to present value of account. Present Value = money needed to fund account throughout your expected lifetime. [Actuarial figure based on a dollar annuity.]
Declining death benefit – the present value is reduced each month by the monthly benefit amount. Normally, death benefit will be depleted in 12 to 18 years from retirement.
If you select the Maximum Single Life Annuity or Option 1, you can name as many beneficiaries as you like and you can change your beneficiaries at any time.
42 SAMPLE – OPTION 1
43 JOINT SURVIVOR ANNUITY
Provides member with a monthly payment for his/her lifetime.
Upon member’s death, one other person, your designated survivor, receives a monthly payment for his/her lifetime.
OPTION 2
Reduced monthly benefit based on member’s gender and age and survivor annuitant’s gender and age at time of retirement. The younger the survivor, the greater the member’s benefit is reduced. Provides lifetime monthly payment for member.
Upon member’s death, provides lifetime monthly payment to survivor--100% of member’s benefit. Protects an individual; not a specific dollar amount.
Benefits payable to survivor annuitant may be limited if providing for a survivor other than a spouse.